Europe

Wrecker Fraud Hurts German Clunkers Plan

August 05, 2009

The German government has been paying a cash rebate since Febrary to any citizen who scraps an old car that is at least nine years old and buys a new model. But one group is claiming that between five and 10 percent of the cars intended for the junkyard, have actually been sold outside of Germany instead. It has been described by German media as the "massive scrapping bonus betrayal."

"Racketeering recyclers are making a good business out of this," Wilfried Albishausen, of the German Union of Criminal Investigators (BDK) labor organization, told the tabloid Bild. His organization claims that up to 50,000 old German cars had been declared wrecked, but were later sold on—taken either to Eastern European countries or shipped to Africa. Albishausen said that spare parts were also being sold—for instance the fronts of cars, including the motors, were also being used in other vehicles outside of Germany.

The highly successful program, intended as stimulus for an auto industry that saw the floor fall out from beneath it as a result of the economic crisis, also required new car buyers to purchase more environmentally friendly models. By taking clunkers of the road, the thinking went, Germany's carbon footprint could also be reduced. Both Britain and America have since launched programs similar to Germany's scrapping bonus, known here as the Abwrackprämie.

But now, it seems the government is being swindled and the old cars' dirtier environmental footprint is simply being shipped offshore.

"The legal situation is completely unclear," Albishausen noted. He said that in the future when similar legislation is passed, if there is potential for fraud, then there should also be some way to criminalize that fraudulent activity.

In fact, Albishausen had already warned about car resellers taking advantage of the scrapping bonus back in April. To get the €2,500 ($3,600) scrapping bonus, German car owners can apply online. But the cash will only be paid out to them once there's been some proof that the old car has been wrecked and they've signed the papers for a new, environmentally friendlier car less than one year old. Since March, in an attempt to thwart potential fraudsters, applicants for the scrapping bonus have had to provide their old vehicle's original, lapsed registration papers. Before March, a copy of the papers was acceptable.

According to Germany's Federal Office of Economics and Export Control (BAFA) over 500,000 Germans have cashed in on the scrapping bonus so far. The German auto industry has also profited, with new car registrations in Germany up by around 40 percent in June. Germany expects to sell close to 4 million new cars in 2009, as compared to 3 million in 2008.

The biggest worry now is what happens when the state fund for the scrapping bonus runs dry—the current fund is capped by the German government at €5 billion. No doubt British and American government offices charged with running their own new scrapping bonus and "cash for clunkers" programs will be observing this—and what happens to the racketeering recyclers—carefully. As for the German government, they may be wondering whether one can ever trust a second hand car salesman.